The UTI India Dynamic Equity Fund took home the winner’s trophy in the India category at the Investment Week Fund Manager of the Year Awards 2021.
Here, Investment Week hears from UTI International CEO Praveen Jagwani about the team behind the fund, negotiating the fallout from Covid-19 and opportunities for the strategy.
Can you give a brief overview of the team running the UTI India Dynamic Equity Fund and the resources available?
UTI is India's oldest asset manager, specialising in managing over $150bn of assets in dedicated India strategies.
The UTI India Dynamic Equity Fund is run by Mr Ajay Tyagi, who has been working at UTI for the entirety of his 21-year career.
He has been running the quality growth strategy, since inception, for over ten years.
He is part of the wider 20-person equity investment team (one of the largest buy-side proprietary research teams in India), who work out of our head office in Mumbai.
Together, the team have active coverage of around 94% of the market cap of the Nifty 500 (around 340 names) and we feel it is this in-depth local knowledge of our only market - India - which gives us an edge over competitors.
What is key to your investment process on the fund and what are you trying to achieve for investors?
The strategy's ability to identify compounding stocks across the entire market cap of Indian equities is central to its long-term success.
Compounding stocks are essentially high quality businesses, within the sectors that have the ability to generate long-term wealth, as defined by high return on capital/return on assets.
Our strategy is 100% bottom-up focused and seeks an investment horizon of at least three to five years, rather than just the next few quarters.
Maintaining this discipline has been central to wealth creation because Ajay is a firm believer in the fact that markets are inefficient in the long term, and highly efficient in the short term.
Therefore, the aim is to capture these long-term inefficiencies in the market by looking beyond the short-term trends and identifying the fundamentals that would generate sustainable, long-term alpha.
How did the team negotiate the market fallout from Covid-19 and what is the longer-term impact for the strategy?
Compounding businesses are known for holding their market value better than the rest of the market in times of crisis. These companies tend to have zero or very low debt on their balance sheets, giving them intrinsic strength. This is reflected in the fund's long-term beta of circa 0.8. Thus when the markets in India sold off - in line with global peers - last March, we were able to protect client capital versus the broader MSCI India index.
As our investment philosophy is long-term orientated, we did not make any knee-jerk tactical decisions when the markets corrected and instead focused on continuously considering the investment thesis for each stock in the portfolio and whether it would withstand the ongoing impact of Covid restrictions.
We like to focus on a few themes and ideas where we have high conviction, rather than spreading our bets across multiple sectors. 2020 was no different in this regard and our portfolio turnover ratio was under 15%.
Can you identify a few key investment opportunities for the fund going forwards and how are you gaining exposure through the strategy?
The strategy is designed to hunt for sustainable compounding businesses and as such the focus is more on individual companies rather than sectors or themes.
Having said that, it has been our experience that sectoral themes tend to play out most efficiently through the best-run compounding businesses in each sector - which are typically the ones we hold in our portfolio.
Ever since the emergence of Trade Wars with China, global pharma and electronic majors have started to de-risk their dependence on Chinese supply chains by establishing manufacturing facilities in India.
As a result, India is rapidly gaining export market share in those two areas. Historically, China has produced 70% of the world's demand for API ( Active Pharmaceutical Ingredients) but since 2020, Indian companies have ramped up their API production with captive demand from global pharma companies.
Some of these Indian companies are small- & mid-caps but delivering explosive growth rates and are on track to be tomorrow's giants.